Learn how to properly use a credit card to finance your small business.
Financing a small business can be approached from multiple directions. It's important to understand what the market offers you and how to use those deals to their full potential, because this initial stage of your company's development is crucial to its long-term success.
A credit card is one of the more popular methods for financing a small business, but it comes with a few caveats that you should consider carefully. Most importantly, it's not the exact same thing as a small business loan, and it has some different implications that you'll need to be aware of.
The basics of using a business credit card
Using a credit card to finance your small business should be treated no differently from a regular loan in that you have to think carefully about your ability to repay the money and keep your balance in check. However, credit cards can provide you with a lot more in the way of floating resources. They make it easy to get a smaller amount of cash when you need it, helping you keep your balance in the positive while you're waiting to get paid. If some of your clients are late with their payments, it can affect your operations down the line. But that doesn't have to be the case if you can cover the negative balance with the help of a credit card.
In fact, most modern businesses rely heavily on perpetually-open lines of credit. This is valid for pretty much all sectors of the market, including larger companies. With that in mind, you should definitely not be afraid to rely on credit lines to supplement your cash flow. In fact, it might be the best option you have in many cases.
Alternative funding sources
You should also consider your other options before resorting to a credit card as a default choice of financing. For example, you might be able to dip into your personal savings if it's an emergency. It may also be possible to take out a small business loan or a personal loan that you can use for your business, or to work with an alternative lender, but there might be severe limitations for these options. Make sure to familiarize yourself with your options and their repayment requirements when planning your next move. You must not jeopardize the future of your business for some quick cash, even though it can be an attractive opportunity.
Be very careful with mixing your personal and business resources in general – it's important to be able to draw a clear line, especially when it comes to dipping into your own money to fund your business. This can get messy fast, although a personal credit card is probably one of the more reasonable exceptions here. Again, if you choose to use a credit card to finance your business, make sure that you have a solid plan for repaying it, and that you understand the full implications it's going to have on your finances. There are many finer points to this that you might not consider at first, so know what your situation is and what the most appropriate next move is for your business.
